Jagadeesh Gokhale, CATO Institute
Kent Smetters, The Wharton School, NBER and TIAA-CREF Institute Fellow
November 2005 |
The U.S. Social Security program provides an important “first pillar” of retirement income for retirees. The financial viability of the program, therefore, receives considerable attention from policymakers and the media. Each year, the Social Security Trustees release a Report that summarizes Social Security’s financial position. Among other measures, the report draws attention to the program’s “cross-over date” (the year when the program’s benefit outlays begin exceeding its tax receipts), the date of “Trust Fund exhaustion”, and the present value of financial shortfalls over the next 75 years.
The authors of this brief argue that these measures have two problems. First, they create a misleading impression of the program’s financial outlook. Second, they are biased against potential reforms that could improve the program’s finances.
Fortunately, the Trustees have recently adopted new accounting measures that deal with both problems. They reveal an $11.1 trillion shortfall in Social Security, or about 3.5 percent of all future taxable payrolls. Unfortunately, these new measures are buried in the Trustees’ Report and receive only scant consideration from policymakers and the media. This brief explains why the newer measures should receive greater attention. Indeed, were these new measures taken more seriously, reforming Social Security and Medicare could reemerge as the top policy priorities that they deserve to be.